Latest 6 Cases This Week: United States v. Boyd (9th Cir.), Sleeth v. Commissioner of Internal Revenue (11th Cir.), BCP Trading and Investments, ...

Constitutional Problems With the Kentucky Proposal (Supported by Mitch McConnell) to Change the Way U.S. Senate Vacancies Are Filled

VIKRAM DAVID AMAR

In this second of a series of columns, Illinois Law dean and professor Vikram David Amar comments on the Kentucky proposal to change the way U.S. Senate vacancies are filled. Dean Amar argues that the Seventeenth Amendment precludes such a proposal, which would allow the state legislature to substantively constrain the governor’s choices in making a temporary appointment.

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United States v. Boyd

Court: US Court of Appeals for the Ninth Circuit

Docket: 19-55585

Opinion Date: March 24, 2021

Judge: Bennett

Areas of Law: Tax Law

The Ninth Circuit reversed the district court's judgment in an action brought by the United States against taxpayer for tax penalties and interest involving her failure to report foreign financial accounts. In this case, taxpayer did not timely file a Report of Foreign Bank and Financial Accounts form (FBAR) disclosing her foreign financial accounts in the United Kingdom. The IRS found that taxpayer violated the reporting requirements of 31 U.S.C. 5314 and imposed multiple penalties under 31 U.S.C. 5321(a)(5)(A) based on her belated submission of a single FBAR. The panel held that section 5321 authorizes the IRS to impose only one non-willful penalty when an untimely, but accurate, FBAR is filed, no matter the number of accounts. In this case, taxpayer was required to file one FBAR for the 2010 calendar year by June 30, 2011 and failed to do so; she committed one violation and the IRS concluded that her violation was non-willful; and thus the maximum penalty for such a violation "shall not exceed $10,000."

Sleeth v. Commissioner of Internal Revenue

Court: US Court of Appeals for the Eleventh Circuit

Docket: 20-10221

Opinion Date: March 19, 2021

Judge: Grant

Areas of Law: Tax Law

The Eleventh Circuit affirmed the tax court's denial of taxpayer's request to sever her liability for unpaid tax liabilities from joint tax returns for the 2008, 2009, and 2010 tax years based on the innocent spouse doctrine. The court concluded that the tax court did not abuse its discretion in balancing the factors for determining equitable relief and concluding that the knowledge or reason-to-know factor weighed strongly against relief. In this case, taxpayer signed the couple's returns, was aware of their shared financial troubles, and knew of their prior problems with the IRS. Furthermore, the tax court did not abuse its discretion by placing too much weight on this factor.

BCP Trading and Investments, LLC v. Commissioner of Internal Revenue

Court: US Court of Appeals for the District of Columbia Circuit

Docket: 19-1068

Opinion Date: March 23, 2021

Judge: Henderson

Areas of Law: Government & Administrative Law, Tax Law

After the Commissioner issued tax adjustments to the partnership of BCP, members of BCP, themselves limited partnerships, challenged the adjustments, arguing they were untimely and that the Commissioner mistakenly determined that the investment partnership was a sham. The tax court found the adjustments timely and upheld the Commissioner's adjustments. The DC Circuit concluded that the tax court applied correct legal precedent and committed no clear error in its findings upholding the Commissioner's tax adjustments. The court explained that the tax court outlined various events that occurred before the taxpayers' individual extensions or the partnership extension were signed, all of which would have put the taxpayers on notice that they should not rely on E&Y's advice any longer. The court also concluded that there was no error in the tax court's determination that BCP was a "sham" partnership. The court explained that the tax court correctly applied Luna v. Commissioner, 42 T.C. 1067 (1964), to determine whether the parties intended to, and did in fact, join together for the present conduct of an undertaking or enterprise. In this case, the tax court correctly concluded that BCP failed the Luna analysis. Finally, the court concluded that the tax court did not abuse its discretion in denying a non-participating party's intervention. Accordingly, the court affirmed the tax court's judgment.

Kimble v. United States

Court: US Court of Appeals for the Federal Circuit

Docket: 19-1590

Opinion Date: March 22, 2021

Judge: Todd Michael Hughes

Areas of Law: Banking, Government & Administrative Law, Tax Law

The Greens opened a Union Bank of Switzerland (UBS) account around 1980, with their daughter, Kimble, as a joint owner. Kimble directed UBS to maintain the account as a numbered account and to retain all correspondence at the bank. Kimble married an investment analyst who agreed to preserve the secrecy of the account. The couple’s joint federal tax returns did not report any income derived from the UBS account nor disclose the existence of the foreign account. After the couple divorced, Kimble's tax returns were prepared by a CPA, who never asked whether she had a foreign bank account. In 2003-2008, Kimble’s tax forms, signed under penalty of perjury, represented that she did not have a foreign bank account. In 2008, Kimble learned of the Treasury Department’s investigation into UBS for abetting tax fraud; she retained counsel. UBS entered into a deferred prosecution agreement that required UBS to unmask numbered accounts held by U.S. citizens. Kimble was accepted into the Offshore Voluntary Disclosure Program (OVDP) and agreed to pay a $377,309 penalty. Kimble withdrew from the OVDP without paying the penalty. The IRS determined that Kimble’s failure to report the UBS account was willful and assessed a penalty of $697,299, 50% of the account. Kimble paid the penalty but sought a refund. The Federal Circuit affirmed summary judgment against Kimble, finding that she violated 31 U.S.C. 5314 and that her conduct was “willful” under section 5321(a)(5). The IRS did not abuse its discretion in setting a 50% penalty.

Hoffman v. City of Boise

Court: Idaho Supreme Court - Civil

Docket: 47590

Opinion Date: March 23, 2021

Judge: Brody

Areas of Law: Constitutional Law, Real Estate & Property Law, Tax Law

Appellants were five individuals and one Idaho limited liability company (collectively, “Plaintiffs”) who owned real property in the City of Boise (“City”) and paid ad valorem taxes to Ada County, Idaho. Plaintiffs brought an action in district court challenging ordinances the City passed that allocate tax increment financing (“TIF”) revenues to Capital City Development Corporation (“CCDC”), the City’s urban renewal agency. Specifically, the ordinances approved the allocation of TIF revenues for CCDC’s use in the Shoreline District Urban Renewal Project Area and Gateway East Economic Development District Project Area. Because Plaintiffs’ alleged injuries were solely predicated upon their status as taxpayers, the district court dismissed their complaint for lack of standing. On appeal to the Idaho Supreme Court, Plaintiffs alleged they had standing under Koch v. Canyon County, 177 P.3d 372 (2008), in which the Supreme Court held that no particularized harm was necessary to establish taxpayer standing where a violation of article VIII, section 3 of the Idaho Constitution was alleged. Because the Supreme Court determined here that, as a matter of law, the ordinances Plaintiffs challenged did not violate article VIII, section 3, it affirmed the judgment of the district court.

Menard, Inc. v. Commissioner of Revenue

Court: Minnesota Supreme Court

Docket: A20-0241

Opinion Date: February 24, 2021

Judge: Lorie Skjerven Gildea

Areas of Law: Tax Law

The Supreme Court affirmed the judgment of the tax court concluding that Menard, Inc. was not entitled to an offset on its sales tax liability under Minn. Stat. 297A.81, holding that the tax court correctly concluded that Menard was not eligible for a sales tax offset. Under section 297A.81, a taxpayer can reduce current tax liabilities by the amount of sales taxes attributable to uncollectible debts owed to the taxpayer. Menard claimed a sales tax offset based on uncollectible debts resulting from customer purchases made on Menard's private label credit card offered by Capital One, N.A. The Commissioner of Revenue concluded that Menard was ineligible to claim an offset and assessed additional sales tax. The tax court affirmed, concluding that unpaid debts from customer transactions made on Menard's private label credit card were owed to Capital One, not Menard. The Supreme Court affirmed, holding (1) the unpaid customer transactions were not debts owed to Menard; and (2) Menard was not a guarantor of the cardholders' debts.